We are studying the interaction between retroviral envelope and receptor proteins, using alphaviruses and other vectors to express relevant proteins. Cells expressing retroviral envelope fuse with cells expressing retroviral receptor. This system models the spread of an infectious agent by cell-cell contact. We also studied transmission of infection via vesicles produced by cells infected with alphavirus vectors encoding virus envelope or receptor proteins. These vesicles act like primitive viruses by fusing with cells bearing the reciprocal protein (receptor or envelope) and transferring vector RNA. Using this system, we found that the receptor for a model mouse retrovirus (MLV) localizes in cholesterol-rich, plasma membrane regions known as rafts. Depleting cells of cholesterol did not affect cell surface expression of the receptor but disrupted rafts and inhibited MLV infection by 95% in mammalian cells and over 99.5% in insect cells, which could be more fully depleted of cholesterol. In contrast to the receptor, the virus envelope protein was not raft-associated, and cholesterol depletion of membranes expressing envelope had little effect on fusion with membranes expressing receptor. Cholesterol probably plays an important role in fusion since many other cell processes that involve membrane fusion, such as endocytosis and vesicle transport, are inhibited by cholesterol depletion. Our results imply that cholesterol is important in an asymmetric step in membrane fusion, since it is needed in only one of the two fusing membranes, and this rules out various models in which cholesterol affects symmetric fusion intermediates.